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Page 1: Draft - World Bank · Web viewThe Ministry of Finance shall maintain a record of existing government debt, loans granted, short-term borrowings and issued guarantees. Authorized body

Budget Law

I. GENERAL PROVISIONS

Article 1

This Law shall regulate the arrangements governing the adoption, records, management, preparation, development and execution of the budget of the Republic of Montenegro (hereinafter called the Government) and the budgets of the municipalities, including public borrowing and guarantees, internal control, budget accounting and auditing, the establishment of the Government Treasury, operations of the budget and internal audit together with preparation and planning of the budgets of extra–budgetary funds.

Article 2

The Minister of Finance may make orders, instructions, programs, guidelines or directions as necessary to give effect to this Law, based on the authority of this Law.

Article 3

The terms used in this Law shall have the following meanings:

Budget is a financial program based on the annual estimates of inflows and outflows

Government budget is the estimate of annual inflows and the outflows as approved by the Parliament of the Republic of Montenegro (hereinafter called the Parliament).

Municipalities’ budgets are the estimate of annual inflows and outflows of the municipalities, as approved by the local assemblies.

Extra–budgetary funds are organizations established by law, which are financed through contributions, earmarked tax and/or non–tax revenue.

Spending units are the government bodies, ministries, administrative bodies, and municipal self-administrative bodies and local administrative bodies (hereinafter called municipal bodies).

Cash payments are any monetary transactions resulting in a reduction in the balance of a bank account.

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A Commitment is an obligation of expenditure, which is likely to result in a cash outflow.

Government bank account is a bank account for the receipt, payment or transfer of government money.

Government money is money in the custody or under the control of the Government, of the municipalities or extra-budgetary funds.

Budget executor is person responsible for the execution of the budget, or person authorized by him.

Treasury Consolidated Account is the total of all accounts comprising all government money representing the government budget.

Guidelines of the Central Bank are a list of approved types of investment, provided by the Central Bank of Montenegro.

Transfers are payments or transfers of property rights, without a requirement for repayment.

Treasury General Ledger is a basic double-entry book of account, which serves for recording the changes of account balance.

II BUDGET ADOPTION, RECORDS AND MANAGING

Article 4

The budget is adopted for the fiscal year and shall be valid during the year for which it is passed.

The fiscal year shall be the calendar year.

Article 5

The Government Budget Law for the fiscal year (hereinafter called the [annual1] Government Budget Law) shall be passed by the Parliament.

The decision on the municipalities’ budgets for the fiscal year (hereinafter called the decision on the municipalities’ budgets) shall be passed by local assemblies.

The budget of an extra–budgetary fund shall be passed by its competent body, as stipulated by law or by-law of that fund in a manner foreseen by these regulations and under the conditions stipulated by this Law.

1 Inclusions within square parenthesis are for clarification of the English version only.

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Article 6

All inflows shall be stated by source in the budget.

All commitments and outflows shall be determined in the budget.

Outflows shall balance out with inflows.

Article 7

In the event that during the fiscal year a law or other regulation is adopted having an effect of decreasing the planned inflows or increasing the planned outflows, at the same time, a proposal shall be made to balance the budget.

Budget balancing shall be done through budget amendments and additions, in a manner and in compliance with the procedure prescribed for its adoption.

Article 8

In the event that during the fiscal year due to extraordinary circumstances and needs there occurs an increase in outflows or a decrease in inflows, the budget shall be balanced by the Cabinet of the Republic of Montenegro (hereinafter called the Cabinet).

Article 9

Inflows consist of:

1. Tax revenues.

2. Non-tax revenues.

3. Contributions.

4. Domestic and external borrowing.

5. Revenues earned on core activities of spending units.

6. Domestic and external grants, both grants in cash, and in kind

7. Other revenues determined in accordance with law.

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Article 10

Outflows consist of:

1. Current expenditures for: salaries and other allowances, outlays for goods and services, current transfers, interest payments and grants in cash and in kind.

2. Capital expenditure for: purchase of fixed assets, securities, and capital transfers and grants in cash and in kind.

3. Lending.

4. Repayment of principal on borrowing based on loans and short-term borrowings and

5. Other payments in accordance with law.

Article 11

A Treasury Consolidated Account shall be established and maintained within the Ministry of Finance.

All government budget inflows, commitments, outflows, expenditure and payment transactions, shall be entered into the Treasury’s General Ledger.

No expenditure shall be made from the Treasury Consolidated Account except where appropriated by [annual] Government Budget Law.

Where an amount is re-credited to the Treasury Consolidated Account after having been debited from the Account under the authority of an appropriation shall be treated as if the amount had not been credited.

Article 12

The Minister of Finance shall issue orders to open bank accounts.

A responsible person may only dispose of government money on the basis of authorities issued by the Minister of Finance.

A bank account, opened under paragraph 1 of this article, must have a name that includes the word “government”.

A responsible person must not misapply government money or improperly dispose of, or improperly use, government money in opposition to the regulations of this Law.

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Article 13

The Minister of Finance shall enter into an agreement with the Central Bank of Montenegro (hereinafter called the Central Bank), regarding the conduct of banking services on behalf of the Government.

However, in the event that the Central Bank is unable to organize the carrying out of any of the services from the paragraph 1 of this article, the Minister of Finance may enter into agreements with other banks resident in the Republic of Montenegro for the conduct of such services, including the establishment of overdraft arrangements.

In the event of paragraph 2 of this Article, the Minister of Finance will, prior to concluding an agreement with a bank resident in the Republic of Montenegro, consider the advice of the Central Bank on the matter.

Article 14

The Minister of Finance may waive the right of the Government to collect an amount owing, up to the limit determined by the Cabinet of the Republic of Montenegro, or may postpone the time of payment or may allow payment by installment.

Any sums written off will be reported to Cabinet by the Minister of Finance, along with the explanation of the circumstances under which the write off was done, and submitted together with the Final Annual Statement of Accounts of the government budget.

Article 15

With the approval of the Cabinet, available funds of the Treasury Consolidated Account may be invested by the Minister of Finance, with the expenses of investing the money being debited from the Treasury Consolidated Account, and the interest received credited to the Treasury Consolidated Account.

Available funds of the Treasury Consolidated Account may be invested only in accordance with Guidelines of the Central Bank.

Article 16

The difference between the inflows (excluding loans) and outflows (excluding lending and repayments of principal) is the budget surplus (if inflows are larger than outflows), or the budget deficit (if outflows are larger than inflows).

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Article 17

The [annual] Law on Government Budget shall stipulate the use of the budget surplus, or the means of financing the budget deficit.

The budget deficit shall be financed by short-term borrowings, domestic and external loans and by the issuance of securities.

The borrowing referred to in paragraph 2 of this Article, may be done only for the purpose of financing capital expenditure.

Short-term borrowings and securities, referred to in paragraph 2 of this Article, may be used for the purpose of insuring the liquidity, the longest for the period of six months, independent from the annual increase of debt stipulated by the [annual] Law on Government Budget.

Article 18

The records of the municipal budgets’ inflows and outflows shall be done in accordance with the regulations, which refer to records of government budget, as stipulated by this Law.

A responsible person in the municipality will manage the municipal budget, in the manner stipulated by this Law referring to the management of government budget.

III BUDGET PREPARATION AND PLANNING

Article 19

The preparation of the government budget shall be based on the projections of economic development, macroeconomic stability, economic policy, laws and other regulations.

Article 20

In July, the Minister of Finance shall prepare a report on the realization of macroeconomic and fiscal policy for the current year. The Minister of Finance shall also propose directives and targets of fiscal policy, on the basis of which it plans the main categories of inflows and outflows for the following fiscal year, and submit these to the Cabinet.

Based on the decision of Cabinet, on the targets and directives of fiscal policy, the Minister of Finance will, in August, issue a circular setting guidelines and objectives of fiscal policy for spending units for the preparation of their budgets.

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The circular shall also include key economic parameters, the procedures and timetable for budget preparation, as well as indicative total levels of expenditure for each spending unit, based on which it plans its own outflows.

Article 21

Spending units will, as part of their procedure for planning the budget submit requests to the Minister of Finance for allocation of budgetary funds.

A request, from the item 1 of this Article, shall include as a minimum:

1) The outflows estimates for the fiscal year as prescribed in the economical and functional classification system determined by the Minister of Finance, in accordance with international standards, including the value of outstanding commitments for the current or prior year;

2) The outflows estimates for the following three fiscal years according to the economical and functional classification system;

3) A summary of personnel requirements for which budgetary funds are planned;

4) An explanation of the estimates outflows;

5) Multiyear commitments or multiyear outflows, along with separately prepared investment programs; and

6) Estimates of inflows from the core activities of spending units.

The Minister of Finance will determinate more specific content and format of the request referred to in paragraph 1 of this Article.

Article 22

The Minister of Finance shall, on the basis of the estimates of inflows and submitted budget proposals for the allocation of budget funds, including [the agreed parameters for the] draft [annual] Law on the Government Budget, propose [final] outflows for spending units, and if there is a deficit determinate borrowing sources for financing the deficit.

In the event of disagreement during discussions on draft [annual] Law on the Government Budget between the Minister of Finance and the persons responsible for spending units, the Minister of Finance will prepare the proposal to the Cabinet for a final decision.

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Article 23

In October the Minister of Finance shall prepare the draft [annual] Law on the Government Budget and shall submit it to the Cabinet.

Article 24

The proposal of the [annual] Law on the Government Budget will be determined by the Cabinet and will be submitted to the Parliament in November.

The proposal of the decision on the municipal budgets will be determined by the authorities of the municipality by the end of November.

Article 25

The budgets of the extra-budgetary funds shall be prepared in accordance with the economic and functional classification system and following the procedures and timetable as may be specified by the Minister of Finance.

Before the budget of an extra-budgetary fund is adopted by its approving authority, it shall be subject to review by the Minister of Finance.

In the event that the Minister of Finance disagrees with the proposed estimates of inflows and outflows of the budgets of extra-budgetary fund, the Minister shall propose amendments.

Summaries of the budgets of extra-budgetary funds shall be submitted to the Parliament for review, along with the proposed [annual] Law on Government Budget.

The Minister of Finance may introduce to the Cabinet a special program to include the inflows and outflows of extra-budgetary funds in the Treasury Consolidated Account and consider it as a part of the government budget.

Article 26

The proposed [annual] Law of Government Budget, as well as a decision on municipalities’ budgets, shall include:

1) The estimation of inflows and outflows stated in accordance with economic and functional classifications;

2) Outflows of the spending units;

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3) Normative part of the budget that regulates the specific form of its execution;

4) The usage of surplus and the cover for the deficit; and

5) The current and the permanent budgetary reserve.

Article 27

The [annual] Law on Government Budget and the decision on municipal budgets, shall be submitted for review to the Parliament or local assemblies with the following:

1) A review of planned inflows and outflows for the following three fiscal years, including the review of multiyear commitments, multiyear outflows and investment program;

2) A review of inflows and outflows for the previous fiscal year, the execution of the budget for nine months of the current fiscal year and the estimation of the execution of the budget for the three remaining months of the current fiscal year.

Article 28

If the government budget is not approved by December 31, the Minister of Finance, until the budget is approved, will, on a monthly basis, approve funds for spending units up to 1/12 (one twelfth) of actual outflows of the previous fiscal year.

Article 29

The person in the municipality, who is responsible for the preparation and planning of the municipal budget in accordance with the provisions of this law, shall have the same authority as the Minister of Finance with regard to the preparation and planning of the government budget.

IV. BUDGET EXECUTION

Article 30

The Minister of Finance is responsible for the execution of the government budget.

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Article 31

Spending units will use the funds determined by the [annual] Law on Government Budget in accordance with the approval of the Minister of Finance.

Spending units determine allocation of the funds for outflows within the scope of the units under their authority.

Budget executors are responsible for the legal use of allocated funds within their spending units.

The commitments of the spending units shall comply with the funds, which are, for each period, approved by the Minister of Finance.

A spending unit may enter into a commitment, the expenditure of which will extend into subsequent fiscal year, under the condition that such expenditure is planned for the next fiscal year.

Article 32

Revenues realized by the performance of the spending units activities, shall be deposited in a government bank account created under Article 12 of this Law.

Article 33

For urgent and unforeseen outflows, during the fiscal year, current and permanent reserve funds shall be used.

The Minister of Finance shall decide on usage of funds from the current and permanent reserves, with the previous approval from the Cabinet.

The Minister of Finance determines the criteria for usage of funds from reserves in paragraph 2 of this Article.

Article 34

In accordance with the regulations, determined by the Minister of Finance, the spending units, municipalities, extra-budgetary funds and public enterprises, shall submit the report to the Minister of Finance on realized inflows and executed outflows.

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Article 35

The Cabinet may reallocate the approved budget appropriations, according to individual outflows and spending units, up to a limit of five per cent of the amount approved by the [annual] Law on Government Budget.

Spending units may, with the approval of the Minister of Finance, reallocate its approved funds by individual outflows, up to five per cent of the total amount of funds approved for outflows which amount is being reduced.

Article 36

Funds approved for spending units can only be used up to the 31st of December of the fiscal year.

Any unpaid commitments in the current fiscal year shall be paid from appropriations of the next fiscal year.

Inflows received after the end of one fiscal year will be recorded as inflows of the next fiscal year budget.

Article 37

The execution of the municipal budgets will be done in accordance with the manner and procedure prescribed by this Law for execution of the government budget, and authorities that the Minister of Finance has in respect of the execution of the government budget, the equivalent responsible person also has for the municipalities.

V. BORROWINGS AND GUARANTEES

Article 38

Government debt may be in the form of loan arrangements, short-term borrowings and securities issues.

Details of holders of securities, issued by the Government, shall be maintained by the Central Bank or may be kept by those financial institutions authorized by the Central Bank.

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Article 39

The [annual] Law on Government Budget shall establish terms, conditions and a limit on the annual increase in the total existing government debt, including loans and overdraft arrangements, short-term borrowings and debts on the basis of the issued guarantees.

The [annual] Law on Government Budget shall determine total amount of guarantees issued by the Government.

The Cabinet shall request from the Central Bank advice on the debt limit and limit of guarantees proposed in the [annual] Law on Government Budget.

The Central Bank is obliged to respond to the request in paragraph 3 of this article within the period determined by the Cabinet.

Article 40

The Cabinet shall decide, based on the financial plan of the Minister of Finance, on borrowing and short-term loans and the issuing of guarantees.

Municipalities may take loans, short-term borrowings and issue loan guarantees with Cabinet approval.

Extra-budgetary funds may take short-terms borrowings with Cabinet approval.

Article 41

The Minister of Finance shall sign government borrowing and guarantee contracts.

The Minister of Finance shall decide on the form of loan arrangements and securities issues for the type of guarantee for insuring of loan repayment.

The Minister of Finance shall enter into a contract with the Central Bank for services required in implementing all decisions on public debt.

Article 42

The Ministry of Finance shall maintain a record of existing government debt, loans granted, short-term borrowings and issued guarantees.

Authorized body within municipalities shall maintain a record of existing municipality debt, loans granted, short-term borrowings and issued guarantees.

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Article 43

There shall be a permanent and indefinite appropriation for such sums as necessary for the payment of interest or principal arising from the debt and guarantee obligations, in accordance with this Law, which must be paid from the Treasury Consolidated Account, and pursuant to the terms and conditions previously contracted by the Government.

VI. INTERNAL CONTROL, ACCOUNTING, AND AUDITING OF THE BUDGET

Article 44

Budget executors shall be responsible for the accounting and internal control of transactions related to inflows, commitments, and outflows of spending units and sub-units falling within their jurisdiction.

Article 45

The Minister of Finance shall, on behalf of the Government, bear responsibility for the accounting, internal control, borrowing and debt transactions.

Article 46

The Minister of Finance shall prescribe the manner and the methodology of conducting internal control of the budget.

Article 47

The Minister of Finance shall prescribe budget accounting procedures, submission of reports on the usage of budget funds, and the manner of recording inflows, outflows and commitments.

The Minister of Finance may issue special orders, for submission of financial reports to the spending units, municipalities and extra-budgetary funds.

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Article 48

The Minister of Finance shall prescribe the manner of preparation, producing and submission of the final accounts of spending units.

Article 49

The Minister of Finance shall, by the 15th of May, prepare the draft final account of the government budget and submit it to Cabinet.

Article 50

Cabinet will agree the draft final accounts by the end of May and submit them to Parliament by the end of July.

Article 51

The final accounts of the government budget and the final accounts of the municipal budget must be in accordance with the content and classifications of the budget, according to Article 26 of this Law.

The final accounts, referred to in paragraph 1 of this Article, shall include:1) An external audit report2) The initial and final balance of the Treasury Consolidated Account; 3) A review of executed discrepancies in regard to planned amounts;4) A report of all government borrowings;5) A report of spending from the budget reserves and 6) A report on guarantees issued during fiscal year.

Article 52

The final account of the budgets of municipalities shall be prepared by the responsible person for each municipality, in accordance with this Law.

The final account of the municipal budgets shall be submitted to the Minister of Finance for review.

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Article 53

Public enterprises, founded by the government and the respective unit of local self-government, conducting a business operation in the public interest shall submit final statements to the Minister of Finance for consideration, or to the municipal responsible person respectively.

VII. GOVERNMENT TREASURY

Article 54.

The Government Treasury shall be established within the Ministry of Finance and shall conduct the following operations:

1) Execute all cash and non-cash payments on the basis of documentation and data supplied manually or electronically by spending units, in accordance with this Law;

2) Maintain the Treasury General Ledger account;3) Manage the government’s inflow accounting systems;4) Process funds warrants; and 5) Prepares the Government Final Accounts.6) Financial control by the use of a Commitment based accounting system7) Ensure that no budget executor can exceed his annual appropriation; and 8) Monitor the execution of Government outflows;9) Develop and manage the Government Accounting and Financial Information

System;10) Provide weekly and monthly reports to all budget users; 11) Provide regular financial reports for the needs of the Minister of Finance and

Cabinet; 12) Support analysis of the Government’s financial systems.13) Manage the cash balances of the Treasury Consolidated Account; 14) Ensure that sufficient cash balances remain in the Treasury Consolidated Account

to pay government financial obligations in a timely manner;15) Maintain a register of government assets.16) Manage the debt occurred on the basis of government securities issued by the

Government;17) Manage the debt occurred on the basis of issued guaranties and borrowings;18) Manage domestic and external debt; 19) Manage international grants, assistance and loans.20)Monitor the financial conduct of the extra-budgetary funds and municipalities.

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VIII. GOVERNMENT BUDGET PERFORMANCE OFFICE

Article 55

Budget Performance consists of:

1) Managing the process of budget preparation, planning and development;

2) Proposing guidelines for the preparation, planning, execution, revision, and evaluation of budgets;

3) Developing and prescribing technical standards relating to preparation, planning, execution, revision, and evaluation of budgets;

4) Analyzing the requests of spending units, including extra-budgetary funds, and proposing their adjustments.;

5) Preparing the [annual] Law of Government Budget;

6) Monitoring the realization of government inflows and execution of outflows;

7) Providing advisory support on budgetary issues to all spending units, municipalities and extra-budgetary funds; and

8) Developing the budget planning process.

IX. INTERNAL AUDIT

Article 56

The Minister of Finance may audit the accounting documents relating to the inflows, commitments and outflows (hereinafter called Internal Audit) of all spending units, extra-budgetary funds and municipalities.

The Minister of Finance prescribes the manner and procedures of undertaking internal audits.

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Article 57

Internal Audit performance consists of:

1) Providing regular assessments of the adequacy and effectiveness of the Government’s decision making processes, minimization of risk and internal control;

2) Reporting significant internal control issues and improving the control processes and information system in order to minimize risk in the decision-making process.

3) Reviewing efficiency of the utilization of the existing services and proposing more efficient way of providing these services;

4) Liaise with the external audit; and

5) Providing periodically information on the status of execution of the annual audit plan .

X. TRANSITIONAL ARRANGEMENTS AND FINAL PROVISIONS

Article 58

From the day this Law enters into force, where this Law is inconsistent with existing laws, the provisions of this Law shall prevail.

Article 59

Regulations, on the basis of authorization given by this Law, will be approved within 12 months from the day of enactment of this law.

Until these regulations are approved, on the basis of authorization given by this law, the regulations (of other laws) that were enforced before the enactment of this law will be used.

Article 60

The Minister of Finance is hereby authorized to close the accounts of government budget users opened at the organization in charge of the payments system within 12 months from the day of enactment of this law, on the day of establishment of the Treasury Consolidated Account and formation of the Government Treasury.

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Resources remaining in government budget user accounts are to be transferred to the Treasury Consolidated Account, where these resources shall remain available for spending units consistent with this Law.

Article 61

Government budgets submitted to Parliament by 2004 should make equal annual progress towards balancing commitments and outflows with own revenues.

Article 62

On the day of enforcement of this law the Law on Public Expenditures (Official Gazette of the Republic of Montenegro, no. 14/ 92) ceases to be valid, except the provisions that refer to the municipal budgets will be applied at the latest 18 months from the day this Law is entered into force.

Article 63

This Law shall enter into force on the 8th day after its publication in the Official Gazette of the Republic of Montenegro, and will be applied at the day of establishment of the Government Treasury and the Treasury Consolidated Account.

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